Saudi Arabia and Iraq an attractive country for many expats because of its loose tax structure. What many US Citizens and Green Card Holders fail to recognize, however, is that even in as loose of a tax structure as Saudi Arabia and Iraq, you are still required to file an annual US expat tax return.
If you are a US Citizens, Green Card Holder, and Permanent Resident of the United States, you are required to file a tax return with the IRS every year no matter where in the world you are living – as long as your earnings are above the minimum filing requirements (roughly $9,000). If you have over $10K in foreign accounts at any time during the tax year, you are also required to file Form TD F 90-22.1 with the US Department of Treasury.
Even though the IRS mandates every taxpayer to report international income, it also allows for various deductions which lessen the impact of US income tax liability. The primary deductions which help to prevent double taxation and reduce the taxes you owe in the US are:
- FEIE (Foreign Earned Income Exclusion) – Allows US expats to deduct up to $92,900 of all foreign earned income from US taxable income.
-FTC (Foreign Tax Credit) – Allows US expats to clam a dollar for dollar credit against their US expat tax return for foreign taxes paid to the host country.
-Foreign Housing Deduction – Allows US expats to deduct qualifying housing costs incurred by moving and living overseas
If you take advantage of these deductions when filing a US expat tax return, you may be able to escape all tax liability with the United States. It’s important to understand, however, that even if you wind up owing nothing to the US after having taken all the deductions available to you, you are still required to file a US expat tax return.
If you have questions about your US tax obligations while living and working in Saudi Arabia or you need help filing your US expat tax return, we at Xpat-tax can help.